Supply & Demand in Trading, Study Guides, Projects, Research of International Finance and Trade

Download Supply & Demand in Trading and more Study Guides, Projects, Research International Finance and Trade in PDF only on Docsity! Supply & Demand Trading - Supply & Demand A short primer on one of the most fundamental aspects of trading. i) Premise ii) Types iii) Identification iv) Factors of Strength v) Trading i) Premise The primary reason price of any asset moves is because of an imbalance between supply (sellers) and demand (buyers). The larger the imbalance, the stronger the move. * Supply > Demand: Price falls © Demand > Supply: Price rises * Supply = Demand: Consolidation ii) Types There are several types of supply/demand zones, but broadly speaking they fall into two categories: ¢ Reversal: Price rallies (falls), consolidates, and reverses to fall (rally). © Continuation: Price rallies (falls), consolidates, and continues to rally (fall). Bert Medea. Wed As noted above, supply/demand zones always from during the consolidation (the base) b/w rallies and drops. Method 1 (Clusters): ¢ Demand: Use the low of the base and the highest candle body. ¢ Supply: Use the high of the base and lowest candle body. Supply (Cluster) Method 2 (Single Candles): More commonly known as order blocks (OB), you'd have seen these all over Twitter in the past few weeks. ¢ Demand: A down candle before an up move that leads to a higher high. e Supply: An up candle before a down move that leads to a lower low. Jemand (Singl eel | | ie H iets) in MS (Higher High) Fearon Me toe) sated Supply (Single Candle) Up Candle before a down move SRI tO ee (Lower Low) Zone drawn from high to open | iy we | i A hi it re iv) Factors of Strength a) Force of breakout: The more explosive the breakout from the base, both in terms of speed and distance of ensuing rally/drop, the stronger the buying/selling power at the base, ergo, the stronger the zone. Re: A clean move away, no wicks. Con) b) Freshness: The best reactions to a supply/demand zone will always be on the first return to the zone. With every subsequent retest of a zone, the supply/demand at said zone depletes, ultimately leading to a break of the zone. Some examples. Contrary to popular belief, with every subsequent test of a supply/demand zone, the said zone loses its strength. Soon, most of the orders in the zone will be consumed causing it to cave and give way to price.